Firm Diversification and Asymmetric Information: Evidence from Analysts' Forecasts and Earnings Announcements
40 Pages Posted: 8 Nov 1999 Last revised: 26 Jun 2015
Date Written: April 30, 2001
Managers frequently cite the desire to mitigate asymmetric information as a motivation for increasing firm focus. The information benefits of focus appear relevant for the subset of firms that actually increase their focus; however, the relevance of focus-related information benefits for the population of diversified firms is an open question. This paper examines the relationship between corporate diversification and asymmetric information proxies derived from analysts’ forecasts and abnormal returns associated with earnings announcements. I find that greater diversification is not associated with increased asymmetric information. These results call into question the notion that corporate diversification strictly exacerbates information problems.
JEL Classification: G32, G29, M41, D82
Suggested Citation: Suggested Citation